The week: A peep at Grab’s financial services performance

On Dec 4, 2020, the Monetary Authority of Singapore (MAS) announced the successful applicants for two digital full bank (DFB) licenses are a joint-venture comprising a duo, Grab Holdings and Singapore Telecommunications ( Singtel), and Sea (formerly known as Garena, which is now the name of its gaming unit).

The conditions that MAS had outlined to qualify included a five-year financial projection which must show a path towards profitability. The assumptions of the financial projection must be reviewed by an external and independent expert, MAS added.

The initial paid-up capital for the entrants is $15 million, during which the two new digibanks will be known as restricted DFBs. The likes of Grab-Singtel and Sea can only be full DFBs after they comply with minimum capital requirements of $1.5 billion, and other requirements such as the net stable funding ratio, liquidity ratio and certain common equity tier-one ratios.

During the restricted phase, these restricted DFBs have a cap placed on the total deposits they can collect, limited to $50 million in aggregate.

However, restricted DFBs can offer unsecured credit to individuals of up to two months the individual’s monthly income. Only simple capital market products can be offered as investment products to individuals. DFBs are also likely to be restricted to banking operations in — at most — two overseas markets initially.

The restrictions may spur the restricted DFBs to comply with regulations to get them to DFBs sooner rather than later.

According to an investor presentation, Grab’s financial services stretch across six Asean countries Singapore, Malaysia, Indonesia, Thailand, Vietnam and the Philippines. Grab’s financial services on its ‘super app’ comes in four buckets — payments and rewards, lending, insurance and wealth. The more fee-based services that Grab’s DFB can offer, the quicker it can increase its fee-based income which is less capital-intensive than lending.

Loss-making

Based on the presentation, Grab’s digibank is part of its financial services platform. The entire financial services offering — which includes vehicle financing and insurance for its drivers — reported Ebtida losses in 2018, 2019 and 2020 of US$200 million, US$500 million and US$400 million ($535.9 million) respectively.

At the same time, the company reported net losses of US$2.5 billion, US$4 billion and US$2.7 billion in 2018, 2019 and 2020 respectively.

Financial services are likely to continue making Ebitda losses for this year, 2022 and 2023. These losses are projected to be US$500 million, US$400 million and US$300 million in 2021, 2022 and 2023 respectively. Grab has warned that these financials are subject to a Public Company Accounting Oversight Board (PCAOB) audit.

In contrast, Sea’s Ebitda losses for its digital financial services sector in FY2019 and FY2020, both for the 12 months to Dec 31, stood at US$113.4 million and US$511 million respectively. Sea’s FY2020 digital financial services GAAP revenue was US$24.4 million in 4Q2020 and US$60.8 million for the full year of 2020.

Total net losses at the Nasdaq-listed company were smaller than Grab’s, at US$1.46 billion and US$1.62 billion respectively.

Grab’s balance sheet is so weak that it cannot be looked at in the terms of a weak capital structure, with accumulated losses, and negative equity. The potential balance sheet could be a lot stronger.

IPO to raise US$4 billion

An IPO is now on the horizon. On April 13, Grab announced it intends to go public in the US in partnership with Altimeter Growth Corp, a special purpose acquisition company (SPAC).

“The proposed transactions value Grab at an initial pro-forma equity value of approximately US$39.6 billion at a private investment in public entity (PIPE) size of more than US$ 4 billion and will provide Grab with approximately US$4.5 billion in cash proceeds,” Grab said in its announcement.

This should be sufficient for Grab to fund its share of bank capital of $1.5 billion in Singapore as a DFB. This would in turn allow Grab to raise its deposit ceiling, and of